Moe, Larry and Curly decide to form a new corporation, TS Corp. Moe and Larry contribute cash for their shares. Curly contributes his existing business. The fair market value of the assets contributed by Curly is $1,500,000. Curly’s business has $300,000 in liabilities which will be assumed by TS Corp. Curly’s tax basis in the assets contributed is $450,000. Assume the transaction is a Section 351 transaction.

1. How much gain or loss does Curly realize on the transaction?

2. How much gain or loss does Curly recognize on the transaction?

3. What is Curly’s tax basis in his new TS Corp stock?

In addition to the shares of TS stock, Curly also receives $100,000 in cash from TS Corp as part of the transaction. Curly uses the cash to buy a boat.

4. How much gain or loss does Curly realize on the transaction?

5. How much gain or loss does Curly recognize on the transaction?

6. What is Curly’s tax basis in his new TS Corp stock?

Instead of taking cash from TS Corp., Curly borrows $100,000 from a local bank. The $100,000 liability is assumed by TS Corp.

7. How much gain or loss does Curly realize on the transaction?

8. How much gain or loss does Curly recognize on the transaction?

9. What is Curly’s tax basis in his new TS Corp stock?